Too Big to Fail
TOO BIG TO FAIL
The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves
Andrew Ross Sorkin
VIKING
VIKING
Published by the Penguin Group
Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A. • Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) • Penguin Books Ltd, 80 Strand, London WC2R 0RL, England • Penguin Ireland, 25 St. Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) • Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) • Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi – 110 017, India • Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) • Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa
Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England
First published in 2009 by Viking Penguin, a member of Penguin Group (USA) Inc.
Copyright © Andrew Ross Sorkin, 2009
All rights reserved
ISBN: 1-101-13480-1
Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.
The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author’s rights is appreciated.
While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication. Further, publisher does not have any control over and does not assume any responsibility for author or third-party Web sites or their content.
To my parents, Joan and Larry, and my loving wife, Pilar
Size, we are told, is not a crime. But size may, at least, become noxious by reason of the means through which it was attained or the uses to which it is put.
—Louis Brandeis, Other People’s Money: And How the Bankers Use It, 1913
CONTENTS
AUTHOR’S NOTE
THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT
PROLOGUE
CHAPTER ONE
CHAPTER TWO
CHAPTER THREE
CHAPTER FOUR
CHAPTER FIVE
CHAPTER SIX
CHAPTER SEVEN
CHAPTER EIGHT
CHAPTER NINE
CHAPTER TEN
CHAPTER ELEVEN
CHAPTER TWELVE
CHAPTER THIRTEEN
CHAPTER FOURTEEN
CHAPTER FIFTEEN
CHAPTER SIXTEEN
CHAPTER SEVENTEEN
CHAPTER EIGHTEEN
CHAPTER NINETEEN
CHAPTER TWENTY
EPILOGUE
ACKNOWLEDGMENTS
NOTES AND SOURCES
BIBLIOGRAPHY
AUTHOR’S NOTE
This book is the product of more than five hundred hours of interviews with more than two hundred individuals who participated directly in the events surrounding the financial crisis. These individuals include Wall Street chief executives, board members, management teams, current and former U.S. government officials, foreign government officials, bankers, lawyers, accountants, consultants, and other advisers. Many of these individuals shared documentary evidence, including contemporaneous notes, e-mails, tape recordings, internal presentations, draft filings, scripts, calendars, call logs, billing time sheets, and expense reports that provided the basis for much of the detail in this book. They also spent hours painstakingly recalling the conversations and details of various meetings, many of which were considered privileged and confidential.
Given the continuing controversy surrounding many of these events—several criminal investigations are still ongoing as of this writing, and countless civil lawsuits have been filed—most of the subjects interviewed took part only on the condition that they not be identified as a source. As a result, and because of the number of sources used to confirm every scene, readers should not assume that the individual whose dialogue or specific feeling is recorded was necessarily the person who provided that information. In many cases the account came from him or her directly, but it may also have come from other eyewitnesses in the room or on the opposite side of a phone call (often via speakerphone), or from someone briefed directly on the conversation immediately afterward, or, as often as possible, from contemporaneous notes or other written evidence.
Much has already been written about the financial crisis, and this book has tried to build upon the extraordinary record created by my esteemed colleagues in financial journalism, whose work I cite at the end of this volume. But what I hope I have provided here is the first detailed, moment-by-moment account of one of the most calamitous times in our history. The individuals who propel this narrative genuinely believed they were—and may in fact have been—staring into the economic abyss.
Galileo Galilei said, “All truths are easy to understand once they are discovered; the point is to discover them.” I hope I have discovered at least some of them, and that in doing so I have made the often bewildering financial events of the past few years a little easier to understand.
THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT
FINANCIAL INSTITUTIONS
American International Group (AIG)
Joseph J. Cassano, head, London-based AIG Financial Products; former chief operating officer
David Herzog, controller
Brian T. Schreiber, senior vice president, strategic planning
Martin J. Sullivan, former president and chief executive officer
Robert B. Willumstad, chief executive; former chairman
Bank of America
Gregory L. Curl, director of corporate planning
Kenneth D. Lewis, president, chairman, and chief executive officer
Brian T. Moynihan, president, global corporate and investment banking
Joe L. Price, chief financial officer
Barclays
Archibald Cox Jr., chairman, Barclays Americas
Jerry del Missier, president, Barclays Capital
Robert E. Diamond Jr., president, Barclays PLC; chief executive officer, Barclays Capital
Michael Klein, independent adviser
John S. Varley, chief executive officer
Berkshire Hathaway
Warren E. Buffett, chairman, chief executive officer
Ajit Jain, president, reinsurance unit
BlackRock
Larry Fink, chief executive officer
Blackstone Group
Peter G. Peterson, co-founder
Stephen A. Schwarzman, chairman, chief executive officer, and co-founder
John Studzinski, senior managing director
China Investment Corporation
Gao Xiqing, president
Citigroup
Edward “Ned” Kelly, head, global banking for the institutional clients group
Vikram S. Pandit, chief executive
Stephen R. Volk, vice chairman
Evercore Partners
Roger C. Altman, founder and chairman
Fannie Mae
Daniel H. Mudd, president and chief executive officer
Freddie Mac
Richard F. Syron, chief executive officer
Goldman Sachs
Lloyd C. Blankfein, chairman and chief executive officer
Gary D. Cohn, co-president and co-chief operating officer
Christopher A. Cole, chairman, investment banking
John F. W. Rogers, secretary to the board
Harvey M. Schwartz, head, global securities division sales
David Solomon, managing director and co-head, investment banking
Byron Trott, vice chairman, investment banking
David A. Viniar, chief financial officer
Jon Winkelried, co-president and co-chief operating officer
Greenlight Capital
David M. Einhorn, chairman and co-founder
J.C. Flowers & Company
J. Christopher Flowers, chairman and founder
JP Morgan Chase
Steven D. Black, co-head, Investment Bank
Douglas J. Braunstein, head, investment banking
Stephen M. Cutler, general counsel
Jamie Dimon, chairman and chief executive officer
Mark Feldman, managing director
John Hogan, chief risk officer
James B. Lee Jr., vice chairman
Timothy Main, head, financial institutions, investment banking
William T. Winters, co-head, Investment Bank
Barry L. Zubrow, chief risk officer
Korea Development Bank
Min Euoo Sung, chief executive officer
Lazard Frères
Gary Parr, deputy chairman
Lehman Brothers
Steven L. Berkenfeld, managing director
Jasjit S. (“Jesse”) Bhattal, chief executive officer, Lehman Brothers Asia-Pacific
Erin M. Callan, chief financial officer
Kunho Cho, vice chairman
Gerald A. Donini, global head, equities
Scott J. Freidheim, chief administrative officer
Richard S. Fuld Jr., chief executive officer
Michael Gelband, global head, capital
Andrew Gowers, head, corporate communications
Joseph M. Gregory, president and chief operating officer
Alex Kirk, global head, principal investing
Ian T. Lowitt, chief financial officer and co-chief administrative officer
Herbert H. (“Bart”) McDade, president and chief operating officer
Hugh E. (“Skip”) McGee, global head, investment banking
Thomas A. Russo, vice chairman and chief legal officer
Mark Shafir, global co-head, mergers and acquisitions
Paolo Tonucci, treasurer
Jeffrey Weiss, head, global financial institutions group
Bradley Whitman, global co-head, financial institutions, mergers and acquisitions
Larry Wieseneck, co-head, global finance
Merrill Lynch
John Finnegan, board member
Gregory J. Fleming, president and chief operating officer
Peter Kelly, lawyer
Peter S. Kraus, executive vice president and member of management committee
Thomas K. Montag, executive vice president, head, global sales and trading
E. Stanley O’Neal, former chairman and chief executive officer
John A. Thain, chairman and chief executive officer
Mitsubishi UFJ Financial Group
Nobuo Kuroyanagi, president, chief executive officer
Morgan Stanley
Walid A. Chammah, co-president
Kenneth M. deRegt, chief risk officer
James P. Gorman, co-president
Colm Kelleher, executive vice president, chief financial officer, and co-head, strategic planning
Robert A. Kindler, vice chairman, investment banking
Jonathan Kindred, president, Morgan Stanley Japan Securities
Gary G. Lynch, chief legal officer
John J. Mack, chairman and chief executive officer
Thomas R. Nides, chief administrative officer and secretary
Ruth Porat, head of the financial institutions group
Robert W. Scully, member of the office of the chairman
Daniel A. Simkowitz, vice chairman, global capital markets
Paul J. Taubman, head, investment banking
Perella Weinberg Partners
Gary Barancik, partner
Joseph R. Perella, chairman, chief executive officer
Peter A. Weinberg, partner
Wachovia
David M. Carroll, president, capital management
Jane Sherburne, general counsel
Robert K. Steel, president and chief executive
Wells Fargo
Richard Kovacevich, chairman, president, chief executive officer
THE LAWYERS
Cleary Gottlieb Steen & Hamilton
Alan Beller, partner
Victor I. Lewkow, partner
Cravath, Swaine & Moore
Robert D. Joffe, partner
Faiza J. Saeed, partner
Davis, Polk and Wardwell
Marshall S. Huebner, partner
Simspon Thacher & Bartlett
Richard I. Beattie, chairman
James G. Gamble, partner
Sullivan & Cromwell
Jay Clayton, partner
H. Rodgin Cohen, chairman
Michael M. Wiseman, partner
Wachtell, Lipton, Rosen & Katz
Edward D. Herlihy, partner
Weil, Gotshal & Manges
Lori R. Fife, partner, business finance and restructuring
Harvey R. Miller, partner, business finance and restructuring
Thomas A. Roberts, corporate partner
NEW YORK CITY
Michael Bloomberg, mayor
NEW YORK STATE INSURANCE DEPARTMENT
Eric R. Dinallo, superintendent
UNITED KINGDOM
Financial Services Authority
Callum McCarthy, chairman
Hector Sants, chief executive
Government
James Gordon Brown, prime minister
Alistair M. Darling, chancellor of the Exchequer
U.S. GOVERNMENT
Congress
Hillary Clinton, Senator (D-New York)
Christopher J. Dodd, Senator (D-Connecticut), chairman of the Banking Committee
Barnett “Barney” Frank, Representative (D-Massachusetts), chairman of the Committee on Financial Services
Mitch McConnell, Senator (R-Kentucky), Republican leader of the Senate
Nancy Pelosi, Representative (D-California), Speaker of the House
Department of the Treasury
Michele A. Davis, assistant secretary, public affairs; director, policy planning